(Pro forma balance sheet construction) Use the following industry average ratios
ID: 2383726 • Letter: #
Question
(Pro forma balance sheet construction) Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc.
Total Asset turnover 1.8 times
Average collection period (assume a 365-day year 8.6 days
Fixed asset turnover 4.9 times
Inventory turnover (based on cost of goods sold) 3.5 times
Current ratio 1.8 times
Sales (all on credit) $3.69 million
Cost of goods sold 78% of sales
Debt ratio 50%
Cash ______ Current liabilities _____
Accounts Receivable ______ Long-term debt _____
Inventory ______ Total liabilities _____
Net Fixed assets ______ Common Equity _____
Total $______ Total $_____
Explanation / Answer
Total asset turnover = Sales / Total assets
=> Total assets = Sales / Total asset turnover
=> Total assets = $3.69 million / 1.8
=> Total assets = $2.05 million
Average collection period = 365 * Accounts receivable / Sales
=> Accounts receivable = Average collection period * Sales / 365
=> Accounts receivable = 8.6 * $3.69 million / 365
=> Accounts receivable = $0.09 million
Fixed asset turnover = Sales / Net fixed assets
=> Net fixed assets = Sales / Fixed asset turnover
=> Net fixed assets = $3.69 million / 4.9
=> Net fixed assets = $0.75 million
Cost of goods sold = 78% * Sales
=> Cost of goods sold = 78% * $3.69 million
=> Cost of goods sold = $2.88 million
Inventory turnover = Cost of goods sold / Inventory
=> Inventory = Cost of goods sold / Inventory turnover
=> Inventory = $2.88 million / 3.5
=> Inventory = $0.82 million
Current ratio = Current assets / Current liabilities
=> Current liabilities = (Total assets - Net fixed assets) / Current ratio
=> Current liabilities = ($2.05 million - $0.75 million) / 1.8
=> Current liabilities = $0.72 million
Debt ratio = Long term debt / Total assets
=> Long term debt = Debt ratio * Total assets
=> Long term debt = 50% * $2.05 million
=> Long term debt = $1.03 million
Cash = Total assets - Net fixed assets - Inventory - Accounts receivable
=> Cash = $2.05 million - $0.75 million - $0.82 million - $0.09 million
=> Cash = $0.39 million
Total liabilities = Current liabilities + Long term debt
=> Total liabilities = $0.72 million + $1.03 million
=> Total liabilities = $1.75 million
Common Equity = Total assets - Total liabilities
=> Common Equity = $2.05 million - $1.75 million
=> Common Equity = $0.30 million
Cash ______0.39 Current liabilities _____0.72
Accounts Receivable ______0.09 Long-term debt _____1.03
Inventory ______0.82 Total liabilities _____1.75
Net Fixed assets ______0.75 Common Equity _____0.30
Total $______2.05 Total $_____2.05
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